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Toronto’s Housing Bubble Pops. “The Frenzy is Over – It’s Over”

by Wolf Richter, Wolf Street:

New listings soar as sales plunge. Prices drop 6% in just one month.

The magnificent house-price bubble in Toronto, which has raised eyebrows even across the jaded asset-bubble world, is hissing hot air.

Residential property sales in Greater Toronto plunged 20% in May year-over-year to 10,196 homes, according to the Toronto Real Estate Board (TREB), with sales of condos dropping 6.4% and sales of detached homes plunging 26.3%.

At the same time, new listings – the new supply suddenly coming out of the woodwork – soared nearly 50% year-over-year. The report tried to put a positive spin on it: “Homeowners, after a protracted delay, are starting to react to the strong price growth we’ve experienced over the past year by listing their home for sale to take advantage of these equity gains.”

And it has already impacted prices. The “TREB MLS Average Price” for all types of homes, dropped 6.2% from April to C$863,910. It remains up 14.9% year-over-year, given the crazy surge in prices over the past months, including the 33% year-over-year gain in March, when prices had gone totally nuts!

What pulled the rug out from under Toronto’s magnificent housing bubble? Three factors:

One, Canada’s largest alternative mortgage lender, Home Capital Group, which caters to new immigrants and subprime borrowers spurned by the banks, has been melting down after a run on its deposits that crushed its funding sources. And now the industry is worried about contagion.

Two, the provincial government of Ontario announced a laundry list of measures, including a 15% tax on purchases by non-resident foreign investors, to tamp down on the house and condo price bubble that left many locals unable to buy even a modest home.

And three, a newly found sense that somewhere out there, hidden behind all the industry hype, lurks reality.

May was the first full month of housing data since those three factors took effect.

“In effect, the market has stalled and is rapidly reversing from a seller’s to a buyer’s market,” said one of two sets of boots on the ground in Toronto. Neither of them wants to be identified. “Sellers are in a panic to offload their properties, especially those who have speculated in flipping homes. And buyers are starting to open their eyes.”

Read More @ WolfStreet.com

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